2013
Market
Measure:
The Industry’s
Annual Report
I
n the introduction to last year’s Market Measure report, we discussed how the close of
the volatile 2012 election cycle would surely
bring some stability back to the economy
and help springboard our nation into a sustained
growth trajectory.
We were confident that, with the last
embers of political instability quenched by the
20
Hardware Retailing | December 2013
democratic process, the leaders of our nation
could marshal their resources and concentrate
on healing our bruised finances, putting people
back to work and pushing the economy forward.
What we didn’t account for, however, was that
the political divisions among our leaders had
grown so deep that our own government would
emerge as THE major obstacle to economic growth.
53
In 2013, overall sales in the home improvement
industry are projected to grow by 5 percent.
In 2013, the U.S. economy is projected
to grow by 3 percent.
Unfortunately, that’s exactly what unfolded in
late 2012 and throughout 2013. Businesses were
forced to curb expansion out of fear of how new
mandates would affect their operations. Banks
remained skittish because of uncertainty over
bond markets and institutional lending rates, and
consumers kept a close eye on spending amid all
the chaos.
Despite these self-inflicted economic wounds,
however, the home improvement industry managed to post solid growth during this period. Sales
at home improvement outlets were on pace to
improve at a pace slightly above 5 percent in 2013.
This growth rate outpaced the economy as a whole,
which was growing at an annualized rate of about
3 percent, according to the The Conference Board.
December 2013 | Hardware Retailing
21
2013
Market
Measure:
The Industry’s Annual Report
$374.7
$358.9
$343.1
$324.9
$308.3
$292.8
$269.9
2010
$278.3
$265.2
$294.5
2008
2009
$300.3
2007
300
Source: NRHA/Hardware Retailing
2017
2016
2015
2014
2013
2012
200
2011
250
*Revised Downward
2017
$351.8
2016
2015
2014
$293.0
2013
$273.9
2012
2011 $231.1
$253.1
2010
200
$253.0
250
2009
$279.0
300
$293.1
350
$312.9
CAG 2007-2012 = -1.4%
$334.9
400
$367.7
CAG 2012-2017 = 6.1%
Source: Home Improvement Research Institute (HIRI)/IHS Global Insights
400
$294.4
$278.9
$267.4
300
$266.7
350
CAG 2007-2012 = -1.7%
2012
2011
200
2010
250
2009
Our estimates include sales through the industry’s hardware stores,
home centers, big-box outlets and retail lumberyards.
Throughout the recession, hardware
stores fared generally better than both
home centers and lumber dealers.
Because much of hardware store sales
are tied to smaller projects and nondiscretionary item sales, these retailers weathered the market’s challenges
better than the other two store types,
which are more closely tied to bigticket projects.
However, as the housing market
begins to rebound, we see stronger
growth opportunities ahead for home
centers and lumber dealers. Hardware stores will continue to see solid
growth over the short term, as most
consumers still are shying away from
larger projects; however, we look for
home centers and lumber dealers to
both be buoyed by the improvements
in the housing market.
350
$303.4
NRHA and Hardware Retailing’s industry estimates consider sales
from all retailers whose primary business is selling home improvement
products. We do not include sales from operations that do not utilize a
retail sales model or service only other companies.
Most consumers emerged from the recent
recession with a decidedly different view about
how they spend their hard-earned cash on home
improvement projects. Gone are the days of
pumping money into a home simply to drive its
resale value. Today’s post-recessionary consumer
is more likely to invest in home improvement
projects of a smaller, more personal scale with an
eye toward increasing comfort more than equity.
That being said, home improvement was one
of the few bright spots in 2013 when it came to
discretionary spending. While consumers were
reluctant to open their wallets for purchases
at department stores and discounters, home
improvement stores fared much better.
We look for consumer confidence to continue
to gain momentum in 2014 and help drive home
improvement purchases. However, consumers are
Retail Outlook
CAG 2007-2012 = -0.5%
400
2008
We then weigh this information against company reports from the industry’s
publicly traded corporations, wholesaler sales figures and additional data
from retail and industry partners. All of this data is combined to calculate
our industry sales estimates and forecasts.
Consumer Confidence
While there are many challenges
facing the home improvement market
that we most certainly can control, the
weather is one area where we are left
at the mercy of Mother Nature.
Changing weather patterns have
made quarterly predictions for home
improvement sales very difficult over
the past couple of years. Early spring in
some areas is offset by a late spring in
others. Two years ago, we faced one of
the worst droughts in decades, and this
year will go down as one of the wettest.
After so much instability in the
weather, it’s difficult to imagine 2014
will be any different, so our growth
prediction is based on that assumption. Should we experience favorable
weather conditions throughout the
year, growth could be even stronger
than anticipated. Unfortunately, the
opposite is also true.
2008
We use a formula that incorporates information from NRHA’s Annual Cost
of Doing Business study, direct retailer research, the U.S. Department of
Commerce NAICS 444 sales reports and information from other research
outlets as the basis for our calculations.
With interest rates still at very attractive levels
and banks showing a willingness to loan money
again, consumers likely will be poised to begin
buying houses at a stronger pace in 2014. Any
positive movement in the housing market translates to positive momentum for home improvement retailers.
This stronger market for both existing and new
home projects is one of the biggest reasons we
are predicting stronger home improvement retail
sales in the next two years.
Some headwinds to housing growth remain,
though. As millenials come of age, home ownership doesn’t hold the allure it once did, and
while aging baby boomers are staying in their
homes longer, this may not offset the slower
number of younger consumers entering the homebuying market.
The silver lining to the home ownership paradigm shift lies in the opportunities each sector
offers home improvement retailers. For more
details into the activity within the housing sector, turn to Page 38.
The Weather
CAG 2012-2017 = 5.1%
2007
NRHA and Hardware Retailing take a large number of factors into account
when determining overall sales estimates for the industry.
Housing Remains a Bright Spot
a fickle lot and react swiftly to government gridlock or other headline-grabbing catastrophes.
$320.8
Industry Sales Methodology
weather can all play a major role in these growth
models coming to fruition.
Let’s take a look at some of the factors that could
have both positive and negative impacts on the home
improvement retailing market over the short term.
2007
While these industry growth figures were strong,
we still didn’t see the large rebound the home
improvement sector has been waiting for since the
industry hit the skids in late 2008.
Now, as we watch 2013 wind down and begin
prognosticating about what the future might
hold, we are yet again cautiously optimistic
about what lies ahead for the home improvement
retailing industry. We are predicting sustained,
moderate growth for home improvement retailers
in 2014 with sales expected to increase by about
5.4 percent.
This 5.4 percent will slightly outpace the
5.3-percent growth the industry experienced in
2013; we expect this growth cycle to peak in
2015 before softening back into the 4-percent
growth range in 2016.
Of course, all this growth is predicated on economic factors remaining similar to those we’ve
seen over the past several years. The constant
ping-ponging between manufactured government
crises, general political instability abroad and the
Three Views of U.S. Home
Improvement Sales in Billions
Source: U.S. Census Bureau, NAICS 444, seasonally adjusted
22
Hardware Retailing | December 2013
www.hardwareretailing.com
www.hardwareretailing.com
December 2013 | Hardware Retailing
23
2013
Market
Measure:
The Industry’s Annual Report
Chain Results
Market Share Profile
2013
2012-2017
2012-2017
DIY Sales By Month
Sales By Type of Store
Outlets
Sales in Billions
Sales in Billions
January
February
$25.44
March
$25.24
April
$26.04
May
$26.33
June
Hardware Stores
$25.32
$26.01
July
$26.47
August
$26.40
September (p)
$26.42
2012
Home Centers
$184.50
Lumberyards
$71.20
Total
Hardware Stores
2013
$194.20
Lumberyards
$75.80
Hardware Stores
2014
2015
Lumberyards
$80.60
2.2%
March
-0.2%
April
6.3%
May
9.7%
June
10.7%
July
10.8%
August
8.2%
September (p)
7.4%
Source: U.S. Department of Commerce/
NAICS 444/Seasonally Adjusted
24
Hardware Retailing | December 2013
9,750
39,390
19,900
Home Centers
9,710
Lumberyards
9,725
Total
2016
Lumberyards
$85.80
39,335
Sales
No. of Stores
(as % of total
industry)
2008
48.3%
13.7%
2008
$142.1
5,532
2009
48.2%
13.4%
2009
$130.7
5,318
2010
47.2%
14.4%
2010
$131.3
5,725
2011
49.1%
13.8%
2011
$136.7
5,441
2012
50.0%
14.7%
2012
$146.4
5,780
1.7%
1%
Compound Annual
Growth Rate
0.75%
1.1%
2008-2012
Lumberyards
$89.00
Hardware Stores
2017
Lumberyards
$92.70
9,725
2016
Lumberyards
9,750
19,810
9,735
Lumberyards
9,750
Hardware Stores
2012 Sales
39,295
19,800
Home Depot
Atlanta
Lowe’s
Mooresville, N.C.
Menard Inc.
Eau Claire, Wis.
ABC Supply
Beloit, Wis.
Pro-Build Holdings
Denver
84 Lumber
Eighty Four, Pa.
Home Centers
9,740
Sutherland Lumber
Lumberyards
9,760
Kansas City, Mo.
Total
$374.7
39,300
Home Centers
Total
2017
19,825
9,725
Hardware Stores
39,300
Stock Building Supply
Raleigh, N.C.
Compound
Annual
Growth
Rate
2012-2017
5.1%
Hardware Stores
Home Centers
4.9%
Home Centers
0.2%
Boise, Idaho
Lumberyards
5.4%
Lumberyards
0.1%
Carter Lumber
Hardware Stores
Total
5.1%
Percent
Change
2012-2017
Total
(in billions)
2008-2012
No. of Stores
Top Chains Individual Performance
39,295
Home Centers
Total
$47.60
$234.40
Total
2015
$358.9
Home Centers
Lumberyards
Stores at End of 2012
Store as of Fall 2013
$74.8
2,256
2,260
$50.5
1,754
1,825
$7.6
270
285
$4.7
455
426
$3.6
423
435
$1.6
255
255
$1.0
55
54
$0.9
57
66
$0.9
85
88
$0.8
170
180
(in billions)
$45.20
$224.70
9,720
Hardware Stores
Net Sales
19,850
Home Centers
Total
$343.1
Home Centers
Total
2014
$42.90
$214.40
Hardware Stores
Hardware Stores
$324.9
Home Centers
Total
February
2013
$40.90
$203.40
Hardware Stores
1.7%
Lumberyards
Hardware Stores
$308.3
Home Centers
Total
January
9,720
Total
$38.30
19,920
Home Centers
Top Chains Combined Performance
(as % of total
industry)
Percentage Point Change
Source: U.S. Department of Commerce/
NAICS 444/Seasonally Adjusted
Sales Growth
2013 vs. 2012
2012
$292.8
Home Centers
Total
Hardware Stores
$37.10
Top Chains Industry Share
-0.6%
-0.2%
BMC
Kent, Ohio
Source: Company Reports and Hardware Retailing Estimates
**The above represent top home improvement outlets with approximately 10 percent or more of sales coming from consumers.
www.hardwareretailing.com
www.hardwareretailing.com
December 2013 | Hardware Retailing
25
2013
Market
Measure:
The Industry’s Annual Report
Retail Store Performance
Annual Survey Suggests Stabilization
T
he 2013 Cost of Doing Business study presents
the North American Retail Hardware Association’s (NRHA) annual financial and operational profile of independent hardware stores, home centers
and lumber/building materials outlets.
This study assesses the financial performance of
home improvement retailers who graciously submitted confidential financial reports for fiscal year 2012
to NRHA. The study presents composite income
statements and balance sheets plus averages for key
financial performance ratios.
The data is segmented for hardware stores, home
centers and lumber/building materials outlets.
In each segment, data is presented for the typical
store, for high-profit stores, for single-unit and multiple-unit companies and for sales volume categories. In addition, there is a five-year historical trend
for typical stores in each segment.
Retailers can use this data to measure their own
performance against industry averages. The data sets
benchmarks retailers can use to establish financial
plans to improve profitability.
Methodology
The annual NRHA Cost of Doing Business study
is made possible through the cooperation of hardware store, home center and lumber/building
materials outlet owners and managers who provide
detailed financial and operational information about
their individual companies.
Questionnaires were mailed to a sampling of
hardware stores, home centers and lumber outlets in
the U.S. to collect detailed financial and operational
information for 2012.
The analysis in this report is the result of extensive review by NRHA. All individual company
responses are completely confidential.
Most of the figures in this report are medians. The
median for a particular calculation is the middle
number of all values reported when arranged from
lowest to highest. The median represents the typical
company’s results and is not influenced by extremely high or low reports.
To determine high-profit stores, all participating
companies were ranked based on net profit before
taxes. The high-profit companies in each segment
26
Hardware Retailing | December 2013
are those that make up the top 25 percent. The figures reported for each of the high-profit segments
represent the median for that group.
Key Findings
Independent hardware stores, home centers and
lumber and building materials (LBM) retailers participating in NRHA’s 2013 Cost of Doing Business
study continue to see trends moving in a positive
direction from both a sales and profit perspective as
economic conditions slowly continue to improve.
Hardware Stores
For hardware stores in the study, the segment had
the highest per-store sales volume ($1,439,052) and
highest sales per customer ($18) since NRHA began
to conduct the study. However, as rising costs of
goods have continued to affect the industry, hardware stores saw their overall cost of goods rise to
the highest level (60.7 percent) since 2001, which
resulted in the lowest gross margin (40.6 percent)
reported since 2006. With better expense controls in
place than in years past, however, hardware stores
were able to produce the lowest total operating
expense figure (39.5 percent) in the past six years,
which contributed to bottom-line profitability being
up over figures reported in the 2012 study. This
drove hardware store return on net worth to 8.7 percent of sales, its highest level since 2006.
Home Centers
In sharp contrast, home centers participating in
the study had the lowest sales volume per store
($2,821,051) since 2000, with a significant drop in
customer counts compared to last year’s study.
In the 2013 Cost of Doing Business study, only
78,000 customers patronized these businesses, one
of the lowest levels seen in more than 20 years. This
drop in customer count was coupled with a $2 drop
in average transaction, putting added top-line pressure on home centers participating in this year’s
study. However, despite the challenges these stores
continue to face to attract customers, home centers
reporting prior year sales did show a year-over-year
sale increase. Home center participants also found
a way to drive profitability and return on net worth
www.hardwareretailing.com
to 12.8 percent of sales, which was one of the best
returns since 2002. This largely stemmed from a
group reporting a 38.3-percent gross margin, which
drove a 3.2-percent profit at the bottom line, one of
the best profit performances reported by home center participants since the study began.
In stride with improving remodeling and new
home construction data over the past two years,
Lumber and Building Materials
LBM retailers in the study also saw sales and
profits continue to increase over last year. Although
customer counts dropped over the prior year and
remain at historically low levels, they are starting
to return to levels seen in 2007 and 2008, prior to
the recession and housing collapse. With a rise in
average sales per customer to an all-time high of
$141, LBM retailers produced the highest sales volume per store since the study began, coming in at
$4,403,081 for fiscal year 2012. This, in turn, helped
drive a healthy bottom line of 2.4 percent, as well as
the highest return on net worth (11.4 percent) since
1999. Further supporting the continued turnaround
of the housing market, LBM retailers continue to
staff up to meet increased business activity, as demonstrated by the increased head counts of 1.5 FTEs
(Full-Time Equivalents) and an increase in payroll
of $4,812 per employee.
This increase, along with rising customer counts,
generated the highest sales volume per store ever
for the hardware category at $1,439,052. High-profit hardware stores also recorded a $1 increase in
average transaction over figures in the 2012 study.
The fact that the high-profit stores had 12 percent
more transactions than a typical store meant that
sales volume per store for high-profit hardware
stores outpaced the typical store by 18 percent.
Cost of goods sold crept up more than a full percentage point for the typical store (60.7 percent in
the 2013 study versus 59.4 percent in 2012) and
increased roughly the same amount for the high-profit
group (59 percent this year versus 57.8 percent last
year). Because high-profit stores were able to control
expenses more effectively, however, they produced
a bottom line profit three times that of a typical store
(6.3 percent high profit versus 2.1 percent typical).
The typical store generated slightly more than a half
a point (.60 percent) in additional profit compared to
a year ago. Also reflective of an improving industry is
www.hardwareretailing.com
the fact that both typical stores and high-profit stores
are staffing up. Typical stores added two people to
their per-store head count while high profits added
one. Even so, hardware stores continued to keep
employee expenses, such as payroll per employee, in
check as this figure decreased over the prior year.
On the balance sheet, high profits have a much better cash position than typical stores (10.6 percent vs.
5.9 percent) with less inventory on hand. The lower
inventory levels likely support better internal controls
that lead to the higher profit margins at high-profit
locations. Also in regard to inventory, high-profit
stores saw inventory turns of 2.2 times while typical
stores turned inventory just 1.8 times.
How to Use This Report
The Industry Annual Report presents financial and operational data that
retailers can use to evaluate their own businesses and plan strategic
changes. Here are ways to use the information in this report effectively.
• Determine your expenses as a percent of sales and calculate your balance
sheet as a percent of total assets. Compare your numbers to the study
results for both typical and high-profit stores.
• Don’t look at percentages alone. Compare your real-dollar expenditures
as well.
• Compare your numbers to stores of a similar size. Don’t limit your
comparison to one type of store. Defining hardware stores, home centers
and lumber outlets is practical for statistical purposes, but your store may
have attributes of more than one type.
• When your numbers differ significantly, determine the cause. Then
develop a plan to bring your numbers more in line with high-profit stores.
• Although high profits have little to do with size, sales growth is one of
the keys to profitability. Remember, there are basically four ways to
generate additional revenue—traffic count, closure rate, transaction size
and margins.
While reviewing the numbers on the following pages, it is extremely
important to note that each year this report contains figures from a
different sample group of stores. That means overall figures have the
potential to vary widely from year to year based on the respondent group
of stores participating each year. We use year-to-year comparisons to
illustrate general trends over time, not to draw specific year-over-year
conclusions.
For the entire Cost of Doing Business study, contact NRHA Member
Services at (800) 772-4424.
December 2013 | Hardware Retailing
27
2013
Market
Measure:
The Industry’s Annual Report
Hardware Stores
Financial Profile of Hardware Stores
Hardware Stores
Definition: Hardware stores carry little or no lumber and building
materials but do carry full lines of core home repair and
maintenance products.
2008
2009
2010
2011
2012
Avg. Size Selling Area (sq. ft.)
9,097
9,000
8,760
9,069
9,500
Total Sales
$1,425,296
$1,430,459
$1,330,152
$1,365,361
$1,470,869
Sales per Store
$1,415,739
$1,413,209
$1,287,986
$1,322,079
$1,439,052
Total Asset Investment
$809,795
$698,504*
$687,707
$691,696
$712,954
Total Inventory
$505,312
$451,234
$443,571
$436,460
$468,411
Key Performance Differences At A Glance:
Productivity Profile Per Unit
2008
2009
2010
2011
2012
Customer Count: 80,000 customers per year patronizing the typical hardware store
vs. 89,756 customers per year at high-profit stores
Sales per Square Feet of Selling Area
$156
$157
$147
$146
$151
Inventory per Square Feet of Selling Area
$56
$50
$51
$48
$49
Net Sales to Total Company Assets
1.8x
2.1x
1.9x
2.0x
2.1x
Net Sales to Total Inventory By Store
2.8x
3.1x
2.9x
3.0x
3.1x
$149,025
$148,759
$143,110
$165,260
$147,595
Avg. Size of Transaction
$17
$17
$16
$17
$18
Sales Volume per Store: $1,439,052 at typical stores vs. $1,695,647 at
high-profit stores (17.8 percent higher at high-profit)
Profitablility Profile
2008
2009
2010
2011
2012
Gross Margin
41.0%
39.7%
40.6%
40.6%
39.3%
H
Net Profit (Before Taxes) to Net Sales
2.6%
2.2%
2.2%
1.5%
2.1%
162.2%
128.5%
122.2%
131.3%
124.7%
8.6%
8.3%
7.8%
5.7%
8.7%
Average Transaction: $18 at typical stores vs. $19 at high-profit stores
Return on Net Worth: 8.7 percent at typical stores vs. 22.9 percent at
high-profit stores
ardware stores in the 2013 Cost of Doing
Business study reporting prior-year’s sales
saw a 1.8-percent increase due to a growth in
customer counts and a $1 increase in average
transaction ($17 to $18). This was the highest
average ticket on record for hardware stores
since the study began.
This increase, along with rising customer
counts, generated the highest sales volume
per store ever for the hardware category at
$1,439,052. High-profit hardware stores also
recorded a $1 increase in average transaction
over figures in the 2012 study. The fact that
the high-profit stores had 12 percent more
transactions than the typical store meant that
sales volume per store for high-profit hardware
stores outpaced the typical store by 18 percent.
Cost of goods sold crept up more than a
full percentage point for the typical store
(60.7 percent in the 2013 study versus 59.4
percent in 2012) and increased roughly the
same amount for the high-profit group (59
percent this year versus 57.8 percent last
year). However, because high-profit stores
are able to control expenses more effectively,
28
Operating Profile
Hardware Retailing | December 2013
they produce a bottom-line profit three times
that of a typical store (6.3 percent high-profit
versus 2.1 percent typical). The typical store
generated slightly more than a half a point (0.6
percent) in additional profit compared to a year
ago. Also reflective of an improving industry is
the fact that both typical stores and high-profit
stores are staffing up. Typical stores added
two people to their per-store head count, while
high-profits added one. Even so, hardware
stores continued to keep employee expenses,
such as payroll per employee, in check as this
figure decreased over the prior year (down
$2,403 for the typical hardware store and down
$2,571 for high-profit stores).
On the balance sheet, high-profits have a
much better cash position than typical stores
(10.6 percent versus 5.9 percent) with less
inventory on hand (60.6 percent versus 65.7
percent). The lower inventory levels likely
support better internal controls that lead to the
higher-profit margins at high-profit locations.
Also in regard to inventory, high-profit stores
saw inventory turns of 2.2 times, while typical
stores turned inventory just 1.8 times.
www.hardwareretailing.com
Total Sales per Employee
Gross Margin Return on Inventory
Return on Net Worth (Before Taxes)
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business study.
*Average of five years historical assets due to influence of response data
Income Statement 2012
Balance Sheet 2012
Net Sales
100%
Current Assets
77.8%
Cost of Goods Sold
60.7%
Fixed Assets
22.2%
Gross Margin
39.3%
Total Assets
100%
Current Liabilities
15.1%
Patronage Dividend/Purchase Rebate
1.3%
Gross Margin Plus Purchase Rebate
40.6%
Long-Term Liabilities
36.2%
Total Expenses
39.5%
Total Liabilities
51.3%
Gross Operating Profit
1.1%
Net Worth
48.7%
Other Income
1.0%
Total Liabilities and Net Worth
100%
Net Profit (Before Taxes)
2.1%
Source: North American Retail Hardware Association.
Figures based on responses to annual Cost of Doing Business study.
www.hardwareretailing.com
Source: North American Retail Hardware Association.
Figures based on responses to annual Cost of Doing Business study.
December 2013 | Hardware Retailing
29
2013
Market
Measure:
The Industry’s Annual Report
Home Centers
Financial Profile of Home Centers
Operating Profile
2008
2009
2010
2011
2012
Avg. Size Selling Area (sq. ft.)
12,000
12,000
10,600
14,000
11,000
Total Sales
$5,172,285
$4,169,156
$3,836,680
$3,746,433
$3,611,211
Sales per Store
$3,847,389
$3,379,518
$3,024,520
$3,461,677
$2,821,057
Total Asset Investment
$1,852,690
$1,823,371*
$1,748,807
$1,845,215
$1,329,376
Total Inventory
$1,146,815
$924,449
$897,138
$915,227
$712,546
Productivity Profile Per Unit
2008
2009
2010
2011
2012
Sales per Square Feet of Selling Area
$321
$282
$284
$268
$256
Inventory per Square Feet of Selling Area
$31
$77
$84
$64
$65
Net Sales to Total Company Assets
2.8x
2.3x
2.2x
2.0x
2.7x
Net Sales to Total Inventory By Store
3.4x
3.7x
3.4x
4.2x
4.0x
$192,369
$194,225
$183,304
$224,286
$186,004
Avg. Size of Transaction
$41
$38
$35
$38
$36
Average Transaction: $36 at typical stores vs. $41 at high-profit stores
Profitablility Profile
2008
2009
2010
2011
2012
Total Operating Expenses: 36.1 percent at typical home centers vs. 32.9 percent
at high-profit stores
Gross Margin
33.5%
31.7%
31.3%
31.6%
36.9%
Net Profit (Before Taxes) to Net Sales
1.0%
1.7%
2.1%
1.5%
3.2%
151.1%
121.1%
110.4%
137.0%
151.7%
9.6%
5.1%
5.5%
4.8%
12.8%
Home Centers
Definition: Home centers are a hybrid mix of hardware store and
lumberyard. Home centers carry full assortments of hardlines shelf
goods as well as commodity lumber and building materials in a
minimum of 10,000 square feet of selling space. Warehouse home
centers, which are typically more than 100,000 square feet, are not
included in this report.
Key Performance Differences At A Glance:
Return on Net Worth: 12.8 percent at typical stores vs. 21.1 percent at
high-profit stores
Purchase Rebate: High-profit stores 1.2 percentage points higher than typical stores
Total Sales per Employee
Gross Margin Return on Inventory
Return on Net Worth (Before Taxes)
W
hile year-over-year same-store sales at home
centers reporting these figures increased 5.75
percent, home centers participating in the 2013
study recorded the lowest sales volume per store
($2,821,051) since 2000. When looking at highprofit locations versus a typical location, higher
profit does not equal higher sales, as was the case
in last year’s study. In fact, the high-profit stores
actually had $313,291 less sales volume and also
had significantly lower customer counts than a
typical store.
Where they made up ground, however, was
in higher ticket sales and better expense-control
measures. High-profit home centers reported an
average transaction of $5 more than the typical
home center ($41 high profit versus $36 typical).
High-profit stores also have tighter expense control
measures in nearly every expense category, which
led to this group more than doubling the profit of
the typical home center (7.4 percent high-profit and
3.2 percent typical).
30
Hardware Retailing | December 2013
High-profit home centers also are purchasing
more effectively, recording a purchase rebate
1.2 percentage points higher than a typical store.
Typical home centers have two more employees
than a high-profit store, but the high-profit stores
have higher payroll per employee expenses of
$2,036. Even with two fewer employees per store,
high-profit home centers still generated $14,617
more sales per employee than at a typical home
center. And while the number of employees at a
typical store continues to decrease, but payroll per
employee reached an all-time high of $40,400.
In regard to the balance sheet, high-profit home
centers nearly doubled the amount of cash they
keep on hand (8.6 percent high profit versus 4.9
percent typical). As with all other store types, the
inventory on hand is lower at high-profit stores
(43.9 percent) than at their typical counterparts
(53.6 percent) and inventory turns at a rate of 2.4
times at a typical store versus 2.7 times at a highprofit store.
www.hardwareretailing.com
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business study.
*Average of five years historical assets due to influence of response data
Income Statement 2012
Balance Sheet 2012
Net Sales
100%
Current Assets
70%
Cost of Goods Sold
63.1%
Fixed Assets
30%
Gross Margin
36.9%
Total Assets
100%
Current Liabilities
17.3%
Patronage Dividend/Purchase Rebate
1.4%
Gross Margin Plus Purchase Rebate
38.3%
Long-Term Liabilities
28.9%
Total Expenses
36.1%
Total Liabilities
46.2%
Gross Operating Profit
2.2%
Net Worth
53.8%
Other Income
1.1%
Total Liabilities and Net Worth
100%
Net Profit (Before Taxes)
3.2%
Source: North American Retail Hardware Association.
Figures based on responses to annual Cost of Doing Business study.
www.hardwareretailing.com
Source: North American Retail Hardware Association.
Figures based on responses to annual Cost of Doing Business study.
December 2013 | Hardware Retailing
31
2013
Market
Measure:
The Industry’s Annual Report
Lumber/Building Materials OutletS
Financial Profile of D-I-Y Lumberyards
Operating Profile
2008
2009
2010
2011
2012
Avg. Size Selling Area (sq. ft.)
7,200
5,000
6,000
7,077
6,000
Total Sales
$4,083,096
$3,872,256
$2,289,127
$3,054,280
$4,513,158
Sales per Store
$3,022,463
$3,237,253
$2,216,316
$2,957,154
$4,403,081
Total Asset Investment
$751,600
$1,370,317*
$1,186,173
$1,531,101
$1,750,989
Total Inventory
$489,292
$631,716
$489,889
$799,235
$810,708
Productivity Profile Per Unit
2008
2009
2010
2011
2012
Sales per Square Feet of Selling Area
$420
$647
$369
$432
$734
Inventory per Square Feet of Selling Area
$68
$126
$82
$113
$135
Net Sales to Total Company Assets
5.4x
2.8x
1.9x
2.0x
2.6x
Net Sales to Total Inventory By Store
6.2x
5.1x
4.5x
3.7x
5.4x
$241,797
$249,019
$221,632
$244,342
$308,988
Avg. Size of Transaction
$98
$127
$103
$69
$141
Sales per Customer: High profit $152 vs. $141 at typical LBM
Profitablility Profile
2008
2009
2010
2011
2012
Sales per Square Foot: $43 higher at high-profit stores
Gross Margin
29.3%
25.6%
25.8%
31.8%
26.1%
Net Profit (Before Taxes) to Net Sales
0.8%
-0.2%
0.9%
1.6%
2.4%
185.5%
135.4%
120.8%
121.6%
146.6%
7.0%
-0.5%
3.5%
10%
11.4%
Lumber/Building Materials Outlets
Definition: Lumber/building materials (LBM) outlets capture the
majority of their sales from lumber and building materials and
typically have salesfloors less than 10,000 square feet.
Note: due to the low number of LBM outlets included in this year’s study (50 firms representing 70 units)
figures can be dramatically different from year to year. Please take this into account when examining
differences between typical and high-profit stores and historical trends.
Key Performance Differences At A Glance:
Customer Counts: Typical stores (31,200) actually attract more customers annually
than high-profit stores do (25,000).
High-profit Stores Have Lower Inventory than a Typical Store: 44.8 percent at
high profit versus 46.3 percent at typical
Total Sales per Employee
Gross Margin Return on Inventory
Return on Net Worth (Before Taxes)
C
omparable year-over-year sales for stores participating in this year’s study were up 12.8
percent for LBM outlets. As with home centers,
higher sales per store didn’t necessarily make
them the highest-profit stores. High-profit LBM
outlets had a lower sales volume per location by
$593,713 and lower customer counts by 6,200
versus a typical LBM outlet. However, high-profit
locations delivered a significantly higher profit
(7.4 percent high-profit versus 2.4 percent typical)
due to higher sales per customer ($152 high-profit
versus $141 typical) and control of all expense
categories below the gross margin line.
While the gross margin actually is higher at
a typical LBM outlet (27.0 percent) than at a
high-profit store (25.6 percent), the return on
net worth (29.8 percent high profit versus 11.4
percent typical) reflects the discrepancy in
profitability.
On the balance sheet, the cash position is
significantly higher at a high-profit LBM outlet
32
Hardware Retailing | December 2013
(14.1 percent) compared to a typical LBM outlet
(3.7 percent). As with the better controls exhibited on the expense side, high-profit stores have
lower inventory than a typical store (44.8 percent at high profit versus 46.3 percent at typical)
but turn their inventory at about the same rate as
typical stores do (4 times at a typical store versus 3.9 times at a high-profit location).
Typical lumberyards surprisingly attracted
more customers than the high-profit lumberyards. Specifically, customer counts for typical
lumberyards were 31,200, where high-profit
stores reported only 25,000 customer visits. In
addition, sales per customer of high-profit stores
came in at $152, whereas the typical lumberyard
reported an average of $141 per transaction.
Finally, sales per square foot at high-profit lumberyards came in at $777, whereas the typical
LBM outlet posted an average of $734; this represents a $43 difference between the high-performing outlets and typical outlets.
www.hardwareretailing.com
Source: North American Retail Hardware Association. Figures based on responses to annual Cost of Doing Business study.
*Average of five years historical assets due to influence of response data
Income Statement 2012
Balance Sheet 2012
Net Sales
100%
Current Assets
76.1%
Cost of Goods Sold
73.9%
Fixed Assets
23.9%
Gross Margin
26.1%
Total Assets
100%
Patronage Dividend/Purchase Rebate
0.9%
Current Liabilities
22.5%
Gross Margin Plus Purchase Rebate
27%
Long-Term Liabilities
24.7%
Total Liabilities
47.2%
Total Expenses
25.1%
Gross Operating Profit
1.9%
Net Worth
52.8%
Other Income
0.5%
Total Liabilities and Net Worth
100%
Net Profit (Before Taxes)
2.4%
Source: North American Retail Hardware Association.
Figures based on responses to annual Cost of Doing Business study.
www.hardwareretailing.com
Source: North American Retail Hardware Association.
Figures based on responses to annual Cost of Doing Business study.
December 2013 | Hardware Retailing
33
2013
Market
Measure:
The Industry’s Annual Report
Financial Profiles
Publicly Held DIY Chains & Wholesalers
Profile of Wholesaling Cooperatives and National Distributors
Financial Profile of Leading Publicly Held D-I-Y Chains 2012
Operating and Productivity Profile
Do It Best Co.
True Value Co.
Orgill Inc.
United Hardware
Dist. Co.
14
8
12
5
1
2,800*
3,800
4,569
N/A
563
622
0
N/A
N/A
450
$3.8 billion
$2.8 billion
$1.9 billion
$1.4 billion
$195 million
$4.0 billion
$2.7 billion
$2.0 billion
$1.6 billion
$199 million
Home Depot
Lowe's Cos.
2,256
1,754
104,000
113,000
Total Sales
$74.8 billion
$50.5 billion
Total Asset Investment
$41.1 billion
$32.7 billion
Total Inventory
$10.7 billion
$8.6 billion
Sales Per Square Foot
$319
$257
% Sales Out of Warehouse
78%
50%
71.5%
72%
82%
Inventory Turnover
4.5x
3.7x
% Sales Out of Pool/Relay
0%
0%
0%
0%
0%
Net Sales to Inventory
7.0x
5.9x
% Sales Direct-Drop Ship
22%
50%
28.5%
28%
18%
$219,865
$205,933
% Sales in LBM
0%
20%
13.4%
8%
5%
Average Size of Transaction
$54.89
$62.82
Number of Employees
5,000*
1,432
2,171
1,916
325
Gross Margin Return on Inventory
242%
201%
Avg. Number of SKUs in Warehouse
72,000
67,000
73,000
72,000
49,000
Home Depot
Lowe's Cos.
6.9:1
12:1
Net Sales
100%
100%
$75.5 million
$36 million
N/A
$3.875 million
Cost of Goods Sold
65.4%
65.7%
$116.4 (FY13)
$115.7 (FY12)
Gross Margin
34.6%
34.3%
% Cash
40%
78%
41%
N/A
50%
Total Operating Expenses
24.2%
28.1%
% Stock
34%
22%
59%
N/A
50%
Net Income (Before Taxes)
9.7%
6.2%
% Other
26%
0%
0%
0%
N/A
Number of Stores (at end of 2012)
Average Size of Selling Area (sq. ft.)
Total Sales Per Employee
Income Statement
Balance Sheet
Home Depot
Lowe's Cos.
Total Current Assets
37.4%
30%
Cash
6.1%
3.0%
Receivables
3.4%
0.5%
Inventory
26.1%
25.0%
Other
1.9%
1.5%
Fixed Assets
62.6%
Total Assets
Number of Distribution Centers
Current Number of Members
Number of Non-Member Accounts
Served
Dollar Volume Most Recent Fiscal Year
Estimated Dollar Volume Calendar
2013
Sales/Inventory Ratio for 2012
2012 Member Rebate Distributed
Source: Company reports and
NRHA/Hardware Retailing Estimates
4.4:1
6:1
5:1
2
5.74:1
1 Based on warehouse sales only.
*approximately
2 Ratio from gross billings.
Handy Hardware numbers were not available as of press time.
1
Profile of Wholesaling Merchandising Groups
PRO Group Inc.
Distribution
America
Val-Test Group
Reliable
Distributors
Current Number of Wholesale Members
29
10
75
105
Number Member Wholesalers End 2012
29
10
75
107
70%
Number Member-Operated Distribution Centers
42
12
90
200
100%
100%
Dollar Volume for 2012 Fiscal Year
$3.0 billion
$1.6 billion
$900 million
1
$2.1 billion
Current Liabilities
27.9%
23.6%
Estimated Dollar Volume Calendar 2013
$3.0 billion
$1.7 billion
$900 million
1
$2.1 billion
Long-Term Liabilities
28.8%
34.0%
Number of Retail Stores Served by Members
35,000
9,000
2,500
20,000
Net Worth
43.3%
42.4%
Number of Program Stores
800
1,400
400
NA
Total Liabilities and Net Worth
100%
100%
Number of Employees
17
11
11
11
Source: Company Reports
34
Ace Hardware Co.
Hardware Retailing | December 2013
Source: Company reports
www.hardwareretailing.com
www.hardwareretailing.com
1 Includes marine.
December 2013 | Hardware Retailing
35
2013
Market
Measure:
The Industry’s Annual Report
December (2012)
President and CEO Steve Synnott, a 20-year
veteran of PRO Group, Inc., a merchandising
and marketing organization based in Denver,
purchased the company from Gary Cosgrave for an
undisclosed price.
Bostwick-Braun purchased the Columbus Fastener
Corporation (CFC), a full-line distributor of fasteners,
construction and industrial supplies, Dec. 31.
January
Ace announced a long-term strategic supply
relationship with Valspar in which the national
paint company would manufacture and supply Acebranded paint products and make a comprehensive
line of Valspar-branded paints available to U.S.
Ace retailers. Valspar also acquired Ace Hardware’s
paint manufacturing assets, including two
manufacturing facilities located near Chicago.
Handy Hardware Wholesale Inc. announced
Jan. 11 that it filed for bankruptcy protection under
Chapter 11 of the bankruptcy code.
BMC, a provider of building materials and
construction services based in Boise, Idaho, signed
a distribution agreement with Orgill, Inc.
February
The latest version of the Marketplace Fairness
Act, introduced Feb. 14, was proposed in an effort
to close the loophole that lets online retailers like
Amazon avoid charging sales tax in states where
36
Hardware Retailing | December 2013
Industry Year in Review
they don’t have physical stores or warehouses. It
included an exemption for online sellers who made
less than $1 million in the previous calendar year.
True Value announced a new branding initiative
on the first day of the co-op’s Spring and Rental
Market, held Feb. 23-25 in Atlanta.
March
Bostwick-Braun announced March 1 that Chris
Beach would be the company’s president and CEO.
Sylvain Prud’homme, a former executive vice
president at Canadian grocery giant Loblaw
Company, was appointed the new head of Lowe’s
Canada, effective March 25.
April
John Venhuizen was appointed president and
CEO of Ace, taking over for the co-op’s outgoing
leader Ray Griffith.
May
Orgill began to ship from a relay distribution
center in Mississauga, Ontario, Canada effective
May 1.
Expo Nacional Ferretera, the largest event in
Mexico and Latin America serving the hardware,
construction and electrical markets, joined the
Reed Exhibitions portfolio of brands.
Ace made plans to enter the home improvement
market in Afghanistan and began partnering with
Afghan entrepreneurs to open stores there.
www.hardwareretailing.com
Lyle Heidemann’s tenure as president and chief
executive officer of True Value officially ended May
31, and John R. Hartmann took over as the co-op’s new
president and CEO. Heidemann continued to serve
True Value through the end of 2013 as an adviser.
Lowe’s comparable-store sales for the quarter
increased 9.6 percent, while Home Depot attributed
its 10.7 percent comparable-store sales increase
in the second quarter to the recovering housing
market and rebounding sales in seasonal categories.
June
September
True Value introduced the True Value Discover®
credit card program for True Value retailers and
customers in the United States.
Lowe’s bid $205 million to acquire Orchard
Supply Hardware, which the big box announced
it planned to run as a standalone business with
Orchard Supply’s current management team.
The Obama administration announced it would
delay the requirement that businesses with more
than 50 employees provide health insurance to
their workers or pay a penalty under the provisions
of the Affordable Care Act.
The unemployment rate was little changed at 7.2
percent, per the U.S. Bureau of Labor Statistics, with
employment increases in construction, wholesale
trade, and transportation and warehousing.
The National Retail Federation calculated retail
industry job gains at 15,200 in September, and
289,000 jobs year-over-year.
Home Depot ended medical coverage for about
20,000 part-time employees and directed them to
the government-sponsored exchanges that were
scheduled to open in October.
Prompted by an environmental activist group’s
research, federal investigators raided Lumber
Liquidators’ corporate offices in Toano, Va.
August
October
A federal judge threw out a Federal Reserve rule
on fees banks can charge merchants when they
swipe customers’ debit cards, saying the Fed didn’t
do enough to limit the charges.
Deman for more home improvement products
led big boxes including Home Depot and Lowe’s
to a increase their comparable-store sales in the
second quarter.
In a letter to its dealers, Benjamin Moore & Co.
announced Michael Searles as the company’s new
chief executive officer.
July
www.hardwareretailing.com
November
True Value announced the restructuring of its
supply chain, logistics and global distribution
network and the addition of three new executives.
December 2013 | Hardware Retailing
37
2013
Market
Measure:
The Industry’s Annual Report
Housing Trends
The New Normal?
Housing Market
Improves, But
Obstacles Remain
F
oreclosures are down. Residential construction is up. After a few rough years during the
recession, the housing market is slowly but surely
creeping back.
While it’s nowhere near the pre-recession levels
from the 1990s and early 2000s—and may never
get back to those levels—retailers have several reasons to be cautiously optimistic about 2014.
In August, sales of new single-family homes
were at a seasonally adjusted annual rate of
421,000, according to a joint release from the U.S.
Census Bureau and the U.S. Department of Housing and Urban Development. Compare that to last
year, when sales were at a seasonally adjusted rate
of 373,000 in August.
New construction is up, too. Single-family housing starts in August were at a rate of 628,000,
according to the U.S. Census Bureau and the U.S.
Department of Housing and Urban Development.
In August 2012, single-family housing starts were
at a rate of 535,000.
Housing inventory is at an all-time low. Heading
into 2013, the number of available homes was at
its lowest since 2001, and that trend has continued
through the year. Generally, a six-month supply of
available homes indicates a balanced market, but
the current supply is well below that, according
to the Joint Center for Housing Studies of Harvard
University. As of the end of September, inventory was at a five-month supply, according to the
National Association of Realtors® (NAR). It was at a
4.9-month supply in August and a 5.4-month supply about a year ago, according to NAR.
Read on to learn more about the different types
of consumers and how their decisions and the current housing trends could affect you.
of 65-and-older households is expected to increase
by 10 million, according to the Harvard study.
Many choose to age in place, meaning they’ll
need to modify their homes in order to continue
living in them as they grow older. While this
generally means they’ll need to add safety equipment, such as grab bars and anti-slip mats, to their
homes, they’ll also need light bulbs, flashlights
and anything else a homeowner might use.
The Young
An increase in unemployment over the past few
years has meant recent college grads and other young
adults have found themselves with lower-paying
jobs—or no jobs at all. As a result, they’ve put off
home buying in favor of renting or even moving back
in with their parents or other family members.
As unemployment rates have dropped and more
of these young adults have found jobs, however,
they’re starting to buy homes again.
Mortgage interest rates have helped, too, with
record lows last year.
These factors have created more favorable conditions for buyers. The national median house price
was up 11.6 percent in March from a year earlier,
according to the Harvard study.
Not only will these consumers make several
trips to your store for supplies as they get settled
in their homes, but you have the ability to make
loyal customers for the future.
The Elderly
The number of homeowners 65 and older continues to increase as baby boomers move into this
category. In fact, over the next decade, the number
38
Hardware Retailing | December 2013
The Remodelers
The rebound in home prices helps current
homeowners feel better about the market, and one
www.hardwareretailing.com
way they show that is through remodeling and
other home improvement projects.
According to the National Association of Home
Builders (NAHB), the Remodeling Market Index
climbed to 57 in the third quarter of 2013—the
highest it’s been since the first quarter of 2004.
Whether it’s to build equity or prepare their
home for sale, homeowners are ready to spend
money on supplies for improvements, and they’ll
need anything from hardware to power tools to
electrical or plumbing parts.
Many of them may be making plans to sell. According to a Fannie Mae survey from March, 26 percent
of respondents said it was a good time to sell—nearly
double the 14 percent who said so one year earlier.
The plus side of low homeownership rates is that
rental rates are up. The national rental vacancy rate
fell for the third straight year in 2012 to 8.7 percent,
according to the Harvard study. This is the lowest
it’s been since 2001. In fact, there was an addition of
more than 1 million renter households last year.
These renters are moving into both apartment
buildings and single- or multi-family homes that
have been converted to rentals. Landlords and
property management companies will continue
to work on these homes and apartments, whether
they’re building, remodeling or repairing. They’ll
need lumber and building supplies, paint, locksets,
dead bolts and more.
The New Normal
The Renters
There has been an overall drop in homeownership. Rates fell for the eighth straight year in 2012,
from 66.1 percent to 65.4 percent, according to the
Harvard study. For those ages 25 to 54, homeownership rates are among the lowest since the 1970s.
And it continued to drop this year: The homeownership rate was 65 percent in both the first and second
quarters of 2013, according to the U.S. Census Bureau.
We may not see an increase any time soon; members of the millennial generation, which generally
describes those born between 1977 and 1997, aren’t
as interested in owning homes as previous generations have been.
And many homeowners are behind or underwater on their mortgages; nearly 70 percent of households with a mortgage are spending more than half
of their income to make those payments.
www.hardwareretailing.com
While it’s great to get excited about the growth
we’re seeing, the market still has a ways to go to get
back to pre-recession levels and the reality is, it may
never get there. Fortunately the market is still in a
much better place than it was in 2008 and 2009, and
offers some opportunities for home improvement
retailers. Take note of the changing lifestyle trends,
such as the 65-and-older demographic staying in
their homes and the more active rental market, to
see how you’ll be affected in 2014.
The rise in new construction, both for singleand multifamily units, means LBM dealers should
be hopefully about sales, too.
Take time to talk with customers and make suggestions for future projects they can do over the
next year. If reality plays out the way these predictions indicate buying, selling and building should
continue into 2014.
December 2013 | Hardware Retailing
39
2013
Market
Measure:
The Industry’s Annual Report
Monthly P&I
Payment
Payment
as %
Income
Median
Family
Income
Qualifying
Income 2
Composite
Affordability
Index 3
2010
$173,100
4.89
$734
14.5%
$60,609
$35,232
172.0
2011
$166,200
4.67
$687
13.4%
$61,455
$32,976
186.4
2012
$177,200
3.83
$663
12.7%
$62,531
$31,824
196.5
Aug. 2013 (p)
$212,200
4.41
$851
16.0%
$63,783
$40,848
156.1
2 Based on a 25% qualifying ratio for
monthly housing expense to gross monthly
income with a 20% down payment.
3 Index equals 100 when
median family income equals
qualifying income.
Source: National Association
of Realtors
Housing Statistics By Region
New Homes Sold* (thousands of homes)
Year
Total U.S.
Northeast
Midwest
South
West
2009
375
31
54
202
87
2010
323
31
45
173
74
2011
306
21
45
168
72
2012
368
29
47
195
97
Aug. 2013 (p)*
421
37
61
241
82
Source: U.S. Census Bureau and U.S. Department of Housing and Urban Development
*Seasonally adjusted annual rate
Existing Homes Sold* (thousands of homes)
Total U.S.
Northeast
Midwest
South
West
2010
3,708
465
859
1,426
958
2011
3,787
449
863
1,471
1,004
2012
4,128
492
1,002
1,605
1,029
Aug. 2013 (p)*
4,750
590
1,230
1,840
1,090
Source: National Association of Realtors
*Seasonally adjusted annual rate
Housing Starts* (thousands of homes)
Year
Total U.S.
Northeast
Midwest
South
West
2009
554
62
97
278
117
2010
471
52
79
247
93
2011
431
41
74
229
86
2012
535
46
92
283
114
Aug. 2013 (p)*
891
101
147
439
204
Source: U.S. Department of Commerce
40
*Seasonally adjusted annual rate
Hardware Retailing | December 2013
www.hardwareretailing.com
A
ccording to the North American
Retail Hardware Association
(NRHA) Executive Quarterly Index,
which surveys independent home
improvement retailers from across the
country to gauge the industry’s health
on a quarterly basis, sales from the
independent home improvement sector closely correlate to national data.
Specifically, the home improvement markets closely correlated to
activity in both the housing starts
national data and national consumer
confidence data.
It is important to understand the lag
time associated with housing starts
and the impact those starts ultimately
have on home improvement sales.
Considering a two-three month lag
time, comp-store sales growth closely
correlated to national housing starts.
Similarly, comp-store sales growth
in the independent home improvement
sector correlated to growth in consumer
confidence. In the chart at the right,
you will notice a direct correlation as
confidence immediately influencing
retail sales without lag time.
While the national averages
closely mirrored activity in the home
improvement sector, the NRHA Executive Quarterly Index noted several
retail challenges, including:
• Rising freight and supplier costs.
• Maintaining staffing and service
levels following deep cuts over the
last 1-2 plus years.
• Health insurance costs.
• Growing pressure on in-stock
levels, driven by sales increases
in some areas and tight supply in
some categories.
• The growing concern and challenges
associated with shoplifting.
www.hardwareretailing.com
40%
(correlation= 0.63)
30%
3%
20%
2%
10%
0%
1%
-10%
0%
-20%
-1%
-30%
Total Survey
-2%
2009
2010
2011 1Q12
2Q12
3Q12
Housing Starts
4Q12 1Q13
-40%
2Q13
Independent home improvement sales growth tightly correlated with housing starts.
Source: NRHA Executive Trends Survey, U.S. Census
Independent Home Improvement Comp-Store
Sales Growth vs. Consumer Confidence
4%
75%
(correlation= 0.76)
3%
70%
2%
65%
1%
60%
0%
55%
-1%
50%
Total Survey
Consumer Confidence Index
Year
4%
Housing Starts %
1 Effective rate on loans closed
on existing homes.
Independent Home Improvement Comp-Store
Sales Growth vs. Housing Starts
Comp Sales Growth %
Mortgage Rate
1
Sales Vary
from National
Averages
Comp sale growth %
Housing Affordability
Median-Priced
Existing SingleFamily Home
Trends
Housing Trends
Consumer Confidence
45%
-2%
2009
2010
2011
1Q12
2Q12 3Q12
4Q12 1Q13
2Q13
Independent home improvement sales growth tightly correlated with consumer confidence.
Source: NRHA Executive Trends Survey, The Conference Board
December 2013 | Hardware Retailing
41
2013
Market
Measure:
The Industry’s Annual Report
Canadian Retail Report
Provided by NRHA Canada
Canadian Economy Remains Slow
T
he Canadian hardware/home improvement
industry’s rate of growth in 2012 slowed very
slightly compared to 2011, nevertheless continuing a trend of positive, although modest, growth
following the downturn during the slowdown of
2008-2009.
Retail home improvement sales in Canada were
valued at $40.8 billion (all figures are in Canadian
dollars) in 2012. That number consists of retail sales
by all hardware stores, building centers and home
centers in Canada, including related hardware/
home improvement/seasonal sales by Canadian Tire,
Costco and mass merchants. It also includes only
hardware and home improvement sales from the coops, excluding petrol and agro products.
Note that the rate of national inflation for Canada
was 2.9 percent in 2011 and 1.5 percent in 2012,
so dealers’ growth in 2012, though modest, is even
tighter when taking the rise in the cost of living
into consideration.
Conditions in 2012 were off to a healthy start
with housing starts recovering and weather cooperating to drive sales. However, conditions did
not remain consistently robust across the country
through the remainder of the year.
Therefore, overall growth of 2.0 percent in 2012
will be followed by slower growth in 2013, reflecting slowing in housing starts and mixed consumer
confidence as Canada’s employment level grows
slowly. The industry in Canada is forecast to grow
by only 1.4 percent in 2013, and that continued
softness is not expected to begin turning around
until late in 2014, when growth is expected to be
only slightly higher than in 2013.
Canadian Sales
Year
2011
2012
2013 (fc)
Sales
$40.01
$40.80
$41.38
2.1%
2.0%
1.4%
Y-O-Y Change
Slow growth is expected to continue in Canada. As conditions improve and if
mortgage interest rates stay stable, housing markets are anticipated to come
back up somewhat in 2014, pushing the forecast for 2014 closer to 2 percent.
42
Hardware Retailing | December 2013
2012 Collective Sales for
Top Four in Canadian Market
Growth by Retail Format
All retail formats except hardware stores enjoyed
growth in 2012, although for the most part that
growth was small.
Only club stores, represented solely by Costco
in Canada, showed growth exceeding the industry
average (4.0 percent versus 2.0 percent), reflecting
the success of Costco in this country.
Traditional hardware stores actually had negative
growth in 2012, shrinking their sales by 2.6 percent. This follows a year of slow growth in 2011,
when the sector was up by only 1.5 percent. This
decline is likely more a function of the emphasis
on building centers and home centers by the major
retail groups such as Home Hardware and RONA.
The hardware store, in addition, has much smaller
sales than a building center.
Big boxes continue to recover post-recession.
Their collective sales growth of 1.0 percent would
have been higher if not for the fact that RONA is
focusing growth on traditional building centers and
Lowe’s is facing tough conditions in Canada as it
expands here.
Canadian Tire’s related hardware and home
improvement sales climbed by 2.1 percent, actually exceeding the industry average rate of growth
of 2.0 percent.
Changes in Provincial Market Share
In a year of positive, but relatively slow,
growth, that growth was not distributed evenly
across the country.
Even with uncertain growth in some parts of
the province, Alberta showed the greatest growth
among the provinces. (Nunavut in Canada’s far
north was up more, but given the small population
and lower presence of dealers, this increase would
be more situational than trending.)
Ontario, Canada’s largest province, and the largest market for home improvement retailing, managed a 3.0-percent increase, after four consecutive
years of falling sales. Quebec’s market was sluggish
overall in 2012, down 1.9 percent.
British Columbia grew again in 2012, thanks to a
rebound in mining and natural resources, increasing overall sales there by 1.6 percent.
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47%
12.5%
15.1%
12.2%
Rest of the Industry
RONA Inc.
Home Hardware
Canadian Tire
13.2%
Home Depot
In 2012, the Top Four increased their collective sales
by 2.3 percent, increasing their overall share of the
market from 52.8 percent to 53.3 percent, representing
a 1.0-percent increase in the overall market share of
the industry.
Following moderate growth in 2011, the Maritimes—New Brunswick, Nova Scotia, and P.E.I.—
were down. Newfoundland again led the Atlantic
region with overall sales up a healthy 4.6 percent.
Industry Continues to Consolidate
Canada’s top four home improvement groups by
sales are RONA Inc., Home Depot Canada, Home
Hardware Stores Limited and Canadian Tire Retail.
Sales by these “Top Four” retail groups increased by
2.3 percent. This rebound can be attributed to solid
growth by Home Hardware, the continued recovery
by Home Depot Canada following a recessionary drop
that persisted into 2011, Canadian Tire’s solid performance in core categories, and some stabilization by
RONA as it works through its latest strategic plan.
Atlantic Canadian Sales
Atlantic
2011
2012
Change
New Brunswick
$1,195
$1,184
-0.9%
Nove Scotia
$1,374
$1,351
-1.7%
Newfoundland
$1,056
$1,105
4.6%
P.E.I.
$172
$166
-3.5%
Total
$3,797
$3,806
0.2%
Atlantic Canada is perennially resistant to economic highs and lows. In 2012,
three provinces saw sales dips. Newfoundland again led the way, boosting
Atlantic Canada’s overall sales by a healthy 4.6 percent.
Western Canadian Sales
Conclusion
The retail home improvement industry in Canada is still climbing slowly toward recovery following the worldwide recession of 2008-2009. While
the country was not hit as hard economically as
were other countries, especially the U.S., it is, in
turn, not growing as quickly post-recession.
However, independent dealers remain the backbone of the industry, with strength in local markets
by dealers who are showing resilience in the face of
slow or flat conditions in many parts of the country.
(NOTE: All data taken from the Hardlines 20132014 Home Improvement Retail Report)
www.hardwareretailing.com
West
2011
2012
Change
New Brunswick
$3,988
$4,053
1.6%
Nove Scotia
$4,291
$4,567
6.4%
Newfoundland
$1,704
$1,712
0.5%
P.E.I.
$1,681
$1,691
0.6%
Total
$11,664
$12,023
3.1%
While growth in the West was not as strong as the 5.3-percent increase
enjoyed in 2011, all the Western provinces made gains in 2012, increasing
sales there by 3.1 percent.
December 2013 | Hardware Retailing
43